Diamonds in the Rough: Sometimes airlines generate big profits in the least likely places
Many years ago, the small nation of Singapore set out to turn itself into a reliable, comfortable and headache-free place to do business with surrounding countries like China, India, Indonesia and Vietnam, which… well… weren’t so headache free. Eventually Singapore evolved into an oasis of stability and prosperity, with an airline that was equally reliable, comfortable and headache-free to fly. Today, many Asian economies are more friendly to businesses, and their airlines are increasingly respected by business travelers. But still, Singapore Airlines succeeds to a not insignificant degree by providing reliable service to unreliable places, competing against unreliable carriers.
And Singapore Airlines isn’t alone. Good airlines around the world often have bad neighbors. Is this an extraordinary irony? Or—upon closer examination—the explanation for their success?
Examples of prosperous airlines based near—but not in— economically and politically troubled countries is a phenomenon rarely noticed but everywhere evident. Another textbook example: Emirates, which is hardly just the national airline of tiny Dubai but also—for many business travelers—the de facto national airline for much of the Middle East and Indian subcontinent. For most of its almost 30-year existence, Emirates competed first and foremost not just against global powerhouses like Lufthansa and Singapore Airlines but even more importantly against the likes of Saudia, Yemenia, Egyptair, Syrian Air, Iran Air, Air India and Pakistan International Airlines, all carriers with less than sterling financial histories. Undercapitalization, poor management and poorly trained workers were rampant in the region where Emirates rose to glory.
The fact is, just because a country has severe problems doesn’t mean people don’t want or need to go there—or to leave there. Some have large populations with wealthy upper classes. Others have large natural resource sectors that multinationals wish to tap. Still others have large migrant populations or sunny beaches.
And this is hardly a state of affairs only emerging-market dynamos can exploit. Developed market airlines also earn some of their best profit margins on routes to troubled countries lacking strong home carriers. Sub-Saharan Africa has long been one of Air France/KLM’s most lucrative markets, producing extraordinarily high yields even in countries with extraordinarily low average incomes. At one point, the route from Paris to Angola’s capital Luanda was the single highest-yielding route in the entire Air France network. And Angola isn’t even a former…
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